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Saddled with an outdated IT organization that simply wasn’t up to the task of positioning the company for future growth, Farm Credit Canada appointed a new CIO and began the difficult task of completely transforming IT. FCC is now well on its way to becoming a truly process-centric organization with a service oriented architecture to support it. Here’s how they did it.

The story was a common one lack of system and data integration, cumbersome business processes, long waits to get IT to make even simple changes, and low IT morale – but what happened at Farm Credit Canada (FCC) is rare and unusual.

Today, IT at FCC has been transformed and the company is well on the way to becoming a truly process-centric organization with a service oriented architecture (SOA) to support it. Morale has hit an all-time high and user satisfaction with IT is higher than it’s ever been, according to CIO, Paul MacDonald.

“Making these changes was not rocket science, but it did take guts,” admitted MacDonald, a former FCC business executive who volunteered to take on this challenge. “We were in serious turmoil in IT for about two to three months,” he stated. “At times, it felt like those around me were expecting us to fail. Fortunately, FCC people are very good at collaboration and we were able to achieve a positive outcome together.”

Beginning the journey The company’s journey began in January 2004 when CEO, John Ryan, launched an Enterprise Integration Program (EIP) designed to transform the company and address the key inhibitors to its future growth. These inhibitors included: a systems-driven approach to process design resulting in cumbersome processes that worked around systems’ functionality; lack of enterprise-wide integration, both across the customer value chain and at different levels; and the need to streamline processes to redirect work toward higher value-add activities.

The leaders of the EIP soon realized a few hard truths. They discovered that enterprise integration was a business problem, not an IT one. In fact, they learned they needed to better understand FCC’s entire enterprise value chain and related business processes before effective system and data integration could be achieved. Although there were many problems with IT that inhibited integration, these would never be solved, they recognized, until the business understood its own processes and put proper process governance in place. Only after this happened would it be possible to put the technology in place to enable those processes.

To facilitate these changes, Ryan created a VP of Enterprise Integration and Customer Experience to focus on business transformation, and appointed MacDonald as CIO to completely renovate IT in parallel with the EIP. This approach had two benefits, said MacDonald. First, it focused the business on business issues and not the changes he was making in IT. Second, by taking the business design and policing role away from IT, where it often ends up, MacDonald was better able to concentrate on internal IT transformation and the governance issues resulting from it. In addition, Ryan halted all ongoing IT development projects for several weeks to enable some foundational value-chain work to be completed and business priorities established. Although this was not a popular decision, it underscored the importance of getting agreement on the key business processes before spending more money on IT solutions.

I.T. in need of an overhaul When MacDonald took over in March 2004, the IT organization was in a significant state of disarray. There was no IT governance and no IT architecture. His first step was a thorough assessment of the current IT environment, operations, roles, responsibilities and governance. This four-week review found that IT involvement in key applications ranged from extremely high to none at all. In many cases, systems were developed in isolation and “thrown over the wall” for IT to manage. There was no standard approach to development or application security and no common tools. Every application had its own infrastructure and integration was point-to-point and highly data-centric.

As in many organizations, FCC was structured according to functional silos; and as a result, IT was organised by vertical application silos. Each business unit owned and governed its IT projects. This resulted in business unit leaders making IT decisions based on their current needs and in essence, “mortgaging the future” because they were unable to see the need to fund the foundational work necessary to govern and operate IT at an enterprise level.

“Before the transformation, IT was considered a necessary evil,” said MacDonald. Business people were afraid of IT and wished it would just go away. As a result, the company had outsourced chunks of IT “for all the wrong reasons”. At the beginning of this process, MacDonald found that his IT staff were highly disengaged from the company (scoring 30% vs. the corporate employee engagement score of 69%). Many staff members were unclear of their roles or were performing multiple roles in the organization. There was a significant lack of technical skills in certain domain areas and many staff were in roles they were unqualified for. The organization was missing senior IT managers who could be thought leaders and there were many unfilled vacancies.

Designing the future-state model of I.T. After the current state assessment, MacDonald and his team, with the help of some expert consultants, designed the future-state model for IT structure, governance and resourcing. The model was validated and refined through sessions with key business stakeholders. “These sessions were important to demonstrate that we weren’t just shuffling the boxes around in IT,” he said.

A key principle was a move from an application-centric to an architecture-centric approach when developing new capabilities. In the new model, integration moved upwards from a data orientation to an application service orientation. The new IT structure also supported streamlined IT processes. Senior managers were appointed for IT planning, development and operations. MacDonald made sure that the new model actually worked the way it was supposed to. “There were cases where it didn’t,” he stated, “and with these, we made changes in our processes.” He attributes his ability to make the new model function as intended to his willingness to listen and make changes where needed.

After 90 days of planning, MacDonald was ready to move towards the new model. And he wanted to do it within another 90 days. “This really took a lot of work,” he explained. “We managed the transition like a project and went at it aggressively.”

He established a transition office and transition teams and developed detailed transition plans, roles and responsibilities. The new IT organization mapped business processes to IT platforms (e.g., customer management, partners and channels, loan management). Each IT platform has a manager who is responsible for interacting with the business process leaders. By the end of this period, each individual in IT had a set of personal objectives, a training plan and key transition activities had been completed.

Keys to transformational success MacDonald identified four distinguishing features of IT’s successful transformation:

Making staff development and resourcing a priority. The future-state staffing model called for a focus on developing permanent staff for senior, high-leverage and strategic positions. Less strategic, commodity skills would be obtained in the marketplace through contractors and consultants. One of the challenges MacDonald faced was increasing the salaries for the senior staff he needed. “This was hard for some business people to swallow,” he said. “I had to be extremely clear about my reasons for doing this.”

Change to IT’s funding model. Fortuitously, the company had made some important changes to its funding model in the year prior to the transformation initiative. Under the old model, each of the business units had access to a pot of money to spend on IT and they used it to further their own functional interests. Under the new model, the discretionary IT budget is owned by the enterprise and every project competes at this level for funding. A scoring system, based on a number of criteria (e.g. ROI, risk, cost), is used to assess every project in the same way. While not part of the transformation initiative, this new model was a critical success factor, said MacDonald. “Because the best scores are for projects that benefit the corporation horizontally, people began to align with the new model since that’s how they get funding.”

Clearly defining business and IT accountabilities. The new process-centric governance framework overlaid business processes on functional departments. Each of the three macro-processes (pre-sale, purchase, and post-sale) now has an executive process owner. These are then broken down into processes and sub-processes, each with a single owner. IT processes were then mapped to these business processes by platform, completely eliminating functional responsibilities for IT.

As part of the transition process, MacDonald’s team created numerous accountability charters, outlining in detail who is responsible for every element of IT. “It’s all about clarity of roles and responsibilities,” he said. This was a very difficult and complex job – especially for cross-functional processes. Clear responsibilities and accountabilities are defined for each stage of IT development and operations. These make it clear that the business is responsible for requirements, participation in the rest of project development, and for signing off on the end product. IT is responsible for designing and developing the technology solution on which business requirements are delivered. Enterprise Integration staff are also required to participate in and sign off on business requirements and to design processes in cooperation with process owners, ensuring horizontal process integration.

Implementing a service oriented architecture (SOA). Siloed applications have been deconstructed into collections of services. Foundational services (e.g. identity management) are shared across multiple processes. Functional services specific to a single process are also available. IT services are then assembled into a common user-interface (i.e. a portal) that is a transparent implementation of a redesigned process and which is specific to the user’s role. Whereas traditionally, FCC bought and customized packages, integrating at the back end, today it buys components (e.g. a risk-scoring module) and deploys them as services. IT assembles components and integration occurs at the user’s screen.

This new approach was clearly communicated to the senior management team and the board of directors so they would understand why they were spending money on IT infrastructure and how SOA would be different from the way IT projects were developed previously. This vision was also driven all the way down through IT to ensure that even developers understood what management was trying to accomplish.

To make the SOA strategy effective, FCC had to make a large investment in infrastructure. “There’s no magic bullet for this,” said MacDonald. He sold his plan to the CEO and the other executives by pointing out the amount of money that had been spent on IT in the past, with unsatisfactory results. He asked for one year to put the infrastructure in place that would be needed before new functionality could be effectively deployed.

MacDonald stressed the importance of having the CEO’s buy-in and mandate for IT transformation. Without Ryan’s support for his plans, they would have failed. “Getting people to really understand process-centred governance is a long road,” he said. “It takes at least 12 to 18 months. Without the CEO’s unwavering commitment, this transformation wouldn’t have happened.”

In spite of this support, it has taken time for people to understand process management and horizontal governance. Both MacDonald and Ryan continually re-communicated this transformation to the business. MacDonald emphasized that he was not taking anything away from the business but giving them the opportunity to focus on business improvement. Nevertheless, it was only when they saw the first process-centric application that many realized what the value would be.

The first new application was a post-sale process: loan renewal. The single, tailored user interface that intuitively guides users through the process steps involved in their work has sent front-line satisfaction with IT higher than he could have dreamed, said MacDonald. When IT and Enterprise Integration initially demonstrated it, about 15 months after beginning its transformation, the users gave the team a standing ovation. “Now, my big challenge is dealing with demand for IT services,” he said.

MacDonald is also in the process of repatriating some of the previously outsourced services (e.g. Help Desk) where the company will be better served with in-house staff.

Today at FCC user satisfaction is very high and IT is seen as being indispensable. IT processes are aligned with business processes, not business units. Business people access “IT services” as required to enable their business processes without reference to the particular IT systems that will be leveraged to deliver a solution. And all IT work is prioritized and funded at an enterprise level.

Within IT, staff positions have been filled with highly competent people and existing staff are flourishing. IT employee engagement has risen to 79% and is climbing. “Even before we saw the first application, you could tell something was different in IT,” said one senior business executive. “People were happy to be doing their jobs and their attitude towards the business was much more positive. MacDonald believes in them and will stand up for them. He was not scared to make decisions.”

Transforming IT at FCC has been challenging, admits MacDonald, but it has also been very rewarding. There are times, he stated, when CIOs need the courage to force changes on the rest of the business and to resist criticism while foundational elements are being laid and no results are seen.

“The transition phase is the ball game,” he said. To some degree, the transition was forced on the organization, he admits, but it was done in conjunction with a great deal of communication. “It was rare that we had to use a stick.”

He stressed that it is important to review and refine the new model continually. “There were some things that just didn’t work,” he said. “We are still constantly learning about process management and horizontal governance.”

Side bar 1

The line on farm credit Canada

Farm Credit Canada is a national lending institution focusing on agriculture. A federal Crown Corporation, it is headquartered in Regina.

FCC’s loan portfolio is currently $12 billion and growing significantly each year. Day-to-day customer-facing operations are coordinated out of its 100+ field offices across the country.

FCC has competitive pricing but does not aim to be a low-cost provider. While it is a product leader, its core strategy is to differentiate on the basis of customer experience. It is doing this in four ways: building strong agricultural knowledge, growing a high-touch sales force, enabling seamless cross-channel interaction, and having consistent, defined standards for customer interaction.

Side bar 2

More hurdles to overcome

While the IT transformation at Farm Credit Canada has been hugely successful, CIO Paul MacDonald and his team still face some significant challenges: Most SOA products are not mature. FCC had a hard time finding true SOA vendors. “We’ve learned that a proof of concept is definitely required,” said MacDonald. “Most of the available products are simply lipstick on a pig.”

He has found that vendors vary significantly in how much they know about SOA. Many products still have proprietary elements. He therefore stressed that anyone moving into this area should be very careful. He also suggests paying for real expertise. Consultants who have good knowledge and experience are expensive but worthwhile. However, many say they have this but few do, so it is important to check into backgrounds. MacDonald recommended that if any SOA guru says it’s easy, an IT manager should run away fast!

It’s hard to get business people not to think about IT limitations. Most business people had been “trained” by IT to think in terms of existing systems. IT staff also had to be retrained not to inject “IT’s reality” into business thinking. Instead, IT staff had to learn to encourage business people to think about “if I could do X, what would it be like?” Today, processes and systems are decoupled. Under the leadership of the Enterprise Integration group, business experts redesign processes as they should be, unencumbered by the limitations of the current system. MacDonald has found that if “system compromises” are introduced too early, the discussion gets sidetracked.

“We now do our best to shield users from these compromises. When we must, we will turn the discussion to a business decision by presenting the cost involved with certain options.”

Some work has to be redone. When taking such a radically new approach to IT development, there is bound to be some wasted effort – initially it was about 50%. Developing the new infrastructure took longer, cost more, and caused more turmoil than MacDonald had initially expected. Now, however, as the organization has learned, waste has declined to around 35%. Paul’s goal is 15% but he cautions, “there’s no ‘you’re there’ in this type of work”.

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Heather A. Smith is Senior Research Associate with Queen’s University School of Business and is one of North America’s most published academic researchers on IT management issues. Her latest book (with J. D. McKeen) is Making IT Happen: Critical Issues in IT Management. She can be reached at .